Indiana University SCOOP Session – Financial Opportunities

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Presentation transcript:

Indiana University SCOOP Session – Financial Opportunities Introduce yourself. Today I will be talking about accounting careers in insurance. Indiana University SCOOP Session – Financial Opportunities February 8, 2005

DEFINITION Promise Transfer of Risk Indemnity Principle Social Device Insurance is a promise where the policyholder transfers risk of loss to the insurance company and they promise to indemnify them or put them back in the position where they were. There is no gain in insurance. It is also a social device where insurance companies collect premium dollars and facilitate the distribution of money as accidents occur.

TYPES OF INSURANCE Life Health Property Casualty All insurance falls into 1 of 4 lines: Life Health Property Casualty

INDUSTRY SCOPE Almost 5,000 domestic insurance companies 2.3 million jobs in 2003 (2.1% average over past 10 years) $885 billion in premiums in 2002 (P/C & L/H) Industry rate of return in 2002: 3.2% in P/C, 1.0% in L/H Taking a look at the insurance industry – read slide

REGULATION Highly Regulated By the States Insurance is highly regulated by the states. So, wherever insurance companies are conducting business, they must comply with the individual state laws.

GAAP vs. Statutory Accounting FINANCIAL STATEMENTS GAAP vs. Statutory Accounting Operating Statement Statement of Assets and Liabilities Taking a look at the financial statements, you probably are learning more about GAAP accounting in your classes. The insurance industry uses statutory accounting: Statutory Emphasis is on Insolvency Not all Company Assets are “admitted” States perform various insolvency tests from financial statements

OPERATING STATEMENTS - Losses (Cost of Goods Sold) Earned Premiums (Sales) - Losses (Cost of Goods Sold) - Operating Expenses --------------------------------------------- = Underwriting Profit/Loss +/- Investment Income = Operating Net Income The Operating Statement is as follows: Earned Premiums equates to Sales Less Losses which equates to Cost of Goods Sold Less Operating Expenses Equals Underwriting Profit/Loss – usually we lose money but make up for it with our investments. Our Net Income is usually positive because of our investment income, but with all of the economic problems, that’s not been the case recently.

STATEMENT OF ASSETS AND LIABILITIES Admitted vs. Non-Admitted Premium Receivables + Investment Assets - Loss Reserves - Unearned Premiums - Operating Liabilities --------------------------------------------- = Policyholder Protection Fund Regarding the Statement of Assets and Liabilities or Balance Sheet: We have the Premium Receivables Investment Assets, which we have a lot of Loss Reserves to account for the accidents Unearned Premiums since policyholders pay premiums upfront Lastly, the Operating Liabilities which gives us the Policyholder Protection Fund, otherwise known as “owner’s equity”. The policyholder protection fund shows whether an insurer is solvent.

ACCOUNTING STRUCTURE Centralized vs. De-centralized Corporate Zone Offices Insurance Support Centers (ISC’s) Supervisory vs. Analytical The accounting structure in insurance companies can either be centralized or decentralized. State Farm has a centralized environment in their Corporate operations and Insurance Support Centers which house our Data Processing and Payment Centers. We have a decentralized environment in our 13 Zone offices. Career paths often run back and forth between the two. In the Accounting functions, there are either supervisory or analytical positions available.

CORPORATE FUNCTIONS Financial Reporting & Analysis Tax Investment Accounting I will be discussing some of the State Farm Corporate, Systems, and Zone office functions. These areas will be representative of other insurance companies but the names of the departments may be different. Financial Reporting & Analysis is responsible for the financial reporting to each state insurance department. Tax is responsible for doing the state and federal income taxes, sales/use tax, and personal property tax. Investment Accounting is not responsible for the investment decisions but maintaining the controls for the investment assets and doing accounting for dividends and interest payments.

CORPORATE FUNCTIONS Accounting Benefits Loss Reserves Data Management Services Accounting Benefits works with our Savings and Thrift or 401K plan. Loss Reserves sets up our liabilities and keeps our loss statistics. Data Management Services is responsible for ad hoc reporting as well as statistical reporting.

CORPORATE FUNCTIONS Auditing Treasury Services General Accounting Services Internal Auditing goes to the zone offices and claims offices to review their operations to make sure sound internal controls are in place. Treasury Services was formed to help reduce our bank fees by monitoring our bank agreements. General Accounting Services perform miscellaneous functions that don’t fit into the other areas.

CORPORATE FUNCTIONS Financial Shared Services Accounts Payable Agency Compensation Employee Compensation Travel & Expense Shared Services Process Analysis FSS is the department where I work. We have consolidated several zone office processes into a more automated process. Accounts Payable is responsible for paying vendors. Agency Comp deals with our agent compensation records. Employee Compensation pays all of our employee salaries. Travel and Expense reimburses employees for business expenses and travel. Process Analysis develops management reports using data generated from these areas.

CORPORATE FUNCTIONS Compliance Change Management Compliance - Since insurance is regulated by individual state laws, the Compliance area was formed to oversee that we are complying with these laws. Change Management consults, trains, and coordinates changes in our accounting systems.

CORPORATE SYSTEMS Financial Business Analyst Current Systems Support New Systems Development Create and maintain detailed operating procedures There are Financial Business Analyst positions available in our Corporate Systems department where you would support current systems, develop new systems, and create and maintain operating procedures.

DAILY DUTIES - ANALYST Problem Solving Project Development Operational Assistance Coordination Communication Functional Area of Expertise There are a few differences you will see between analysts and supervisors. Analysts’ main responsibilities are project development, assisting the operation, and being an expert in their field. Supervisors’ main responsibility is performance management, making sure their team members develop and perform at the best of their abilities while getting their responsibilities completed.

ZONE STRUCTURE 13 Zones throughout the country. Most are fairly independent of each other. Do share best practices between them, but are fairly independent.

ZONE OFFICE FUNCTIONS Premium Payment Processing Cash Disbursements / Claims Support Agency Compensation Self Audits Transformational / Expense Analysis In the Zone offices, there are supervisory positions and a few analytical positions. There are supervisory positions available in all 5 of these functions. However, there are only analytical positions available for the transformational/expense analysis responsibilities.

DAILY DUTIES - SUPERVISION People Skills Performance Management Organization & Planning Problem Solving Time Management Communication Coordination The following is a list of general duties or skills that you will find in both the supervisory and analytical positions. You will work with a lot of different people and will need to organize your day to make sure everything that needs to get done, gets done. I have found that no day is the same – different things arise that usually require you to use your problem solving skills and communicate with others to get the task completed or problem resolved.

TECHNICAL TRAINING On-Line Operating Procedures Hardware and Software PeopleSoft Application Microsoft Numerous proprietary applications Supervisory Skills CD-ROM Leadership Development Series In each area, you receive technical training. At State Farm, our accounting operating procedures are on-line. We use PeopleSoft for our accounting processes and have numerous company-specific applications. In addition, supervisors must take leadership classes.

PROFESSIONAL DEVELOPMENT In-House Courses Insurance Education ChFC, CLU, CPCU Professional Designations CPA, CMA, MBA The insurance industry promotes professional development either through: In-house courses, such as human resources and workstation classes, Insurance education where you can earn many different types of designations such as Chartered Property Casualty Underwriter, And, Professional Designations are also promoted where you can earn your CPA or MBA.

STATE FARM PRODUCT LINES Auto Health Fire Life Financial Services SF Bank Mutual Funds State Farm offers Auto, Health, Fire, and Life polices as well as has moved into the Financial Services arena a few years ago where we offer bank and mutual fund products.

STATE FARM DATA 20 Affiliated Companies Mutually owned company 74 million policies and accounts in force $136 billion in Assets (12/31/03) State Farm Associates 17,00 Agents 72,000 Total Employees About 2,000 Accounting Employees Finally, a few more tidbits about State Farm. Read items on slide. Source 2003 Annual Report

STATE FARM’S INDUSTRY POSITION Ranked #18 within Fortune 500 #1 U.S. Auto insurer since 1942 19% Market Share at end of 2003 Almost 40 million Auto policies #1 U.S. Home insurer since 1964 22% Market Share at end of 2003 Currently almost 25 million Fire policies Top U.S. insurer of pleasure boats We hold a 20% market share in Auto and have been #1 since 1942. We hold a 25% market share in Fire and have been #1 since 1964.

CAREER PATHS Diversity Opportunity Mobility By working for a larger insurance company, you have flexibility in career paths. You have the opportunity to work in claims, underwriting, agency, and human resources, even though you may have started in an accounting, finance, or CIS role. You control your career path. At State Farm, we post job opportunities online each day. One of the reasons State Farm has a low turnover rate is due to the ability to have a variety of careers. Opportunity Mobility

IDEAL CANDIDATES Accounting majors with a minimum of 9 hours of CIS/MIS Finance and Other majors with a minimum of 9 hours of Accounting and 9 hours of CIS/MIS CIS/MIS majors with a minimum of 9 hours of Accounting “B+” GPA overall and in major For your information, I am providing you with the knowledge and skills desired for candidates seeking employment at State Farm.

IMPORTANT TRAITS Real world experiences Technical skills GPA Leadership qualities Personal presentation Attitude Ability to learn Problem analysis and analytical thinking Customer service orientation Adaptability, drive and initiative Proven track record Passion for work In addition, listed are traits that State Farm feels are important to possess.

BENEFITS Medical and Life Insurance Defined-Benefit Retirement Plan Profit Sharing (401K match) Education Costs Flexible Work Hours Mobility Here are a few benefits that State Farm offers: Regarding education costs, State Farm reimburses employees for pursuing their bachelors and masters degrees as well as doctorates. Many associates work a variety of hours; some working as early as 6:00am and others working longer hours to get every Friday off.

If you have questions, you can log onto our website or see me after class. Thanks for your time and letting me come talk about the insurance industry and State Farm! WWW.STATEFARM.COM